Tough times loom, says John Lewis

John Lewis warned conditions will remain challenging

John Lewis has warned conditions will remain "challenging" as it revealed profits have sunk by a quarter.

It warned there would be no let up in the current consumer downturn as it said pre-tax profits fell 27% to �108m ($191m) in the six months to July.

Operating profits at the group's department stores fell 34% to �21m as it blamed the slowdown in the property market for a decline in homeware sales.

Operating profits at its Waitrose supermarkets fell 8% to �103m.

Overall sales across the John Lewis Partnership rose just 3.6% to �3.27bn.

Looking ahead, chairman Charlie Mayfield warned the rest of the year would be tough.

Consumer cutbacks

"Conditions for the rest of the year will continue to be challenging with ongoing pressures on consumer spend ... We remain cautious about the outlook for the rest of 2008 and 2009," he added.

Shoppers have been reining in their spending in the face of the current credit crunch with many turning to discount retailers in an effort to cutback.

For example, John Lewis' results came as lower priced home furnishings retailer Dunelm Mill posted a 20% rise in profits for the year to June 28, saying its "'simply value for money" message had struck a chord with cost-conscious shoppers.

Profits at Dunelm rose �41.9m on the back of a 2.5% rise in like-for-like sales.

But despite the strong performance to June, Dunelm revealed that its like-for-like sales dipped 10% in the 10 weeks to 6 September, a sign that trading conditions had become "increasingly difficult".

New focus

In an effort to shake-off the gloom of the property market, John Lewis added it would be switching the focus of its department stores from homeware for the rest of the year.

Instead it will concentrate on better-performing fashion lines and its gift offerings in the run-up to Christmas.

Meanwhile, John Lewis said it would continue with its recent promotional drive at its Waitrose stores in a bid to "improve price perception" among shoppers who believe the chain is a pricier option.

The John Lewis partnership operates 27 department stores across the UK, the website John Lewis direct, 187 Waitrose supermarkets and Greenbee.com, a direct services company.

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